Does Micron Technology Support Higher Prices?

With shares of Micron Technology (NASDAQ:MU) trading around $10, is MU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Micron Technology is a global manufacturer and marketer of semiconductor devices, as well as other memory technologies, packaging solutions, and semiconductor systems for use in computing, consumer, networking, automotive, industrial, embedded and mobile products. In addition, the company manufactures semiconductor components for other products. Micron Technology operates in four segments: NAND Solutions Group, DRAM Solutions Group, Wireless Solutions Group and Embedded Solutions Group. Through its segments, Micron Technology is able to provide the products demanded as inputs for growing technologies.

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T = Technicals on the Stock Chart are Strong

Micron Technology has seen a significant decline from highs reached during the technology boom. Currently, the stock is in a downtrend but a potential breakout can be very positive. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Micron Technology is trading above its rising key averages which signal bullish price action in the near-term.

MU

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Micron Technology options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Micron Technology Options

46.94%

13%

15%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Micron Technology’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Micron Technology look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

3.45%

-42.11%

-900%

-557.14%

Revenue Growth (Y-O-Y)

3.43%

-12.25%

-55.31%

1.54%

Earnings Reaction

10.69%

-6.92%

-0.66%

-7.84%

Micron Technology surprised investors with positive earnings and revenue growth rates in the latest quarter. From these figures, the markets are excited about the latest report given by Micron Technologies.

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P = Excellent Relative Performance Versus Peers and Sector

How has Micron Technology stock done relative to its peers, Spansion (NYSE:CODE), MoSys (NASDAQ:MOSY), Intel (NASDAQ:INTC), and sector?

Micron Technology

Spansion

MoSys

Intel

Sector

Year-to-Date Return

50.68%

-15.09%

36.25%

1.40%

9.02%

Micron Technology has been a year-to-date relative performance leader.

Conclusion

Micron Technology provides products that are essential in many growing technologies around the world. As technology expands, so will demand for Micron Technology’s products. The stock has been in a long-term downtrend but may be getting reading to break this trend and continue higher on positive earnings and revenue in the latest quarter. Relative to its peers and sector, Micron Technology has led in year-to-date performance by a wide margin. Look for Micron Technology to OUTPERFORM.

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